Open market operations

Updated: 24.04.2017

Money market operations play an important role in the Eurosystem's monetary policy. They are used to steer the money market interest rates, manage free liquidity as well as to signal the ECB's monetary policy stance. Open market operations are usually executed by the national central banks and initiated by the ECB.

The Eurosystem can conduct four types of market operations providing euro liquidity to counterparties in exchange for eligible and clearly defined collateral securities:

– main refinancing operations;

– longer-term refinancing operations;

– fine-tuning operations;

– structural operations.

Monetary operations of the Eurosystem are usually decentralised. That means that the Board of the ECB takes decisions concerning monetary policy operations, whereas the central banks of the Eurosystem implement those decisions in practice.

Main refinancing operations are weekly liquidity-providing operations executed through fixed and variable rate tenders. Usually, the maturity of those operations is one week. At fixed rate tenders, the interest rate on the central bank money is specified in advance in accordance with the monetary policy stance. Variable rate tenders are organised based on a minimum bid rate serving as the lowest limit for the price of the central bank money.

Longer-term refinancing operations are liquidity-providing operations conducted on a monthly basis. Usually, their maturity is 3 months and banks have the opportunity to satisfy their longer-term liquidity needs.

Fine-tuning operations are conducted in specific cases to manage the liquidity situation in the market and to steer interest rates, in particular in order to smooth the effects on interest rates caused by unexpected liquidity fluctuations in the market. In addition to providing additional liquidity, fine-tuning operations can be also used to attract term deposits from credit institutions. Most fine-tuning operations are conducted on the last days of reserve maintenance periods. Fine-tuning operations are normally executed by the national central banks through quick tenders or bilateral procedures. The Governing Council of the ECB can decide, under exceptional circumstances, to have bilateral fine-tuning operations executed by the ECB.

Longer-term structural operations can be conducted when it is necessary to adjust the structural liquidity position of the Eurosystem vis-á-vis the financial sector. Issuance of debt instruments or sales and purchase of securities can be used for this purpose.

Overview of the types of open market operations used by the Eurosystem